Rules proposed by the Obama administration set the stage for a battle between Midwest grain producers and environmentalists who say the gasoline additive actually worsens global warming.

    Washington - The Obama administration on Tuesday proposed renewable-fuel standards that could reduce the $3 billion a year in federal tax breaks given to producers of corn-based ethanol. The move sets the stage for a major battle between Midwest grain producers and environmentalists who say the gasoline additive actually worsens global warming.

    For much of the last decade, federal officials have touted the potential of corn ethanol as a substitute for gasoline and a tool for reducing global warming and foreign oil dependence.

    However, environmentalists and others have questioned the wisdom of that support.

    A recent Congressional Budget Office study found that increased ethanol production was responsible for 10% to 15% of last year's increased U.S. food costs. And the rush to produce more corn for fuel has had a global environmental impact as forests and other vegetation have been cleared to make way for cropland.

    The Environmental Protection Agency's climate-change rules are subject to public comment and revision before they become final. And exactly how big their impact will be on corn producers' tax breaks depends how corn ethanol is determined to affect the environment.

    The wide range of possibilities was evident in the EPA's analysis of various fuels' contributions to global warming. Corn ethanol could be substantially worse for the climate than traditional gasoline, or it could be substantially better - depending on how it is produced and on the accounting methods the EPA settles on for tallying its greenhouse gas emissions.

    "The rules are kind of in the category of wait-to-see-what-happens," said Rodney Weinzierl, executive director of the Illinois Corn Growers Assn.

    However, industry officials were cheered Tuesday by the announcement that nearly $1 billion in stimulus funds would go toward advanced biofuel research and that the government would take new steps to promote ethanol-powered cars and fueling stations.

    Although biofuels as a whole - including those made from grasses and even algae - are considered promising alternatives to petroleum, some researchers have begun challenging the use of corn for this purpose.

    In particular, they point to the "indirect land-use" effects of pulling corn out of the world food supply, which could force farmers in developing nations to clear rain forests - and release massive amounts of carbon dioxide in the process - in order to plant corn.

    Congress in 2007 mandated an increase in biofuel production, peaking at 36 billion gallons a year by 2022. It also called for corn ethanol to emit 20% fewer greenhouse gases than gasoline, and ethanol made from crops such as switchgrass or wood chips to release 60% less.

    The EPA rules proposed Tuesday include indirect land-use calculations in tallying emission. Many crops grown specifically for biofuels, such as switchgrass, pass the test easily. In many cases, corn and soy-based biodiesel do not.

    The move comes on the heels of a California Air Resources Board decision last month to factor indirect land use into the state's renewable fuels standard.

    Nathanael Greene, director of renewable energy policy for the Natural Resources Defense Council, said that the administration "looked at the science and decided they were going to do the best analysis they could on land-use impacts. . . . They stuck by it through a lot of political pressure."

    Industry groups seized on the EPA's pledge to conduct "peer reviews" of the science underlying indirect land-use analysis, which ethanol interests and many independent scientists say has too high an error margin to be used when calculating a fuel's emissions.